Feeling the Pinch of a Double Income

Some say less is more. Where money is concerned, though, more can be less.

My husband and I stood side by side in our cramped master bathroom, staring down at the pregnancy test on the countertop.

Two lines stared back.

Just that quick, our lives became a whirlwind of planning: the nursery, the name, the delivery, the gadgets.

And less fun but more vital — our finances.

In a cold rush of reality, we realized that if I was going to stay home with our baby, things had to change. Quickly.

"When mothers joined the workforce, the family gave up something of considerable (although unrecognized) economic value: an extra skilled and dedicated adult, available to pitch in to help save the family during times of emergency."

Within two days, I directed my accounting department to deposit 75 percent of my paycheck into a savings account.

Up to that point, all our money had gone into our checking account. We hadn't really squandered my income. In fact, we had used it to pay off student loans and one of our cars. But we'd also used it for some vacations, some furniture and some, to be honest, of I don't know what.

We had little savings, and one income was about to go adios. So for three trimesters, we socked it away.

Luckily, as my belly expanded, so did the account. By the time our daughter arrived, we had a nice chunk of change to cushion against emergency. It was a relief, but also a little depressing.

If we did so much in just nine months, I thought, what could we have been doing for the last four years?

I realized regretfully that we could have done a lot — saving a heck of a down payment, paying off both cars or building a killer savings account instead of just a nice one.

And we weren't alone. For a number of reasons — layoffs, medical emergencies, ailing parents and new babies — couples are realizing that double-income days don't necessarily last forever. They're buying financial help books, refinancing mortgages, shopping warehouse stores and searching desperately for ways to work from home.

They are, according to authors Elizabeth Warren and Amelia Warren Tyagi, stuck in a "two-income trap." Their book, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, tackles the question: Why are dual-income families, who earn far more than their single-income counterparts of past generations, hitting financial bottom?

I was intrigued as soon as I saw this book. After all, I see it happening around me: friends who can't stay home with their children because of pre-kid financial commitments; Sunday School acquaintances getting pink slips; everybody trying to make ends meet.

Why, if more money's coming in, is it harder to balance the checkbook?

Warren and Tyagi answer the question in two ways.

First, they say, families "committed" the wife's salary. Instead of socking her paycheck away, they spent more money for bigger homes in good school districts and for better day care, preschool and schooling. In essence, the authors suggest, a "bidding war" erupted among dual-income families to get the best for their kids. This turned mom's "extra" salary into a necessity.

Second, families lost their "safety net" — the stay-at-home mom. "By the usual logic, sending a second parent into the workforce should make a family more financially secure, not less," they write. "But this reasoning ignores an important fact of two-income life. When mothers joined the workforce, the family gave up something of considerable (although unrecognized) economic value: an extra skilled and dedicated adult, available to pitch in to help save the family during times of emergency."

Not only are families tired, stressed and guilty about sending their kids to day care, they're facing the reality that the one thing they hoped for — financial security — is what they've given up.

The modern two-earner couple is actually more vulnerable than the traditional single-breadwinner family according to these authors. By committing both incomes families have no wiggle room when hit by layoffs (which will strike one in 16 couples every year), medical emergencies or any number of unplanned financial strains.

So what's a family to do?

Here's where the authors come up short. I'm not one for regulating the credit and mortgage industries or for universal preschool at taxpayer expense.

But there were some ideas I found intriguing, like tax-exempting all savings and using vouchers for all public school students.

The one solution to the "trap," though, that would have really helped me and my peers, wasn't even considered by the authors.

It's what my brother-in-law calls the best marital advice he's ever gotten: Live on one income, even though you have two. In other words, don't enter the trap to begin with.

Though they don't suggest it as a practical solution, Warren and Tyagi acknowledge this approach has potential: "If two-income families had saved the second paycheck, they would have built a different kind of safety net — the kind that comes from having plenty of money in the bank."

But then they scoff at the idea. "Like it or not, women now need those paychecks to pay the mortgage and the health insurance bills. Their incomes are committed, and calling for them to abandon those financial commitments would mean forcing them to give up their families' spot in the middle class."

It's true many American couples have already committed the wife's salary, and it is difficult — though not impossible — to backpedal from those commitments.

But for those who haven't yet committed — for college students, newlyweds and young marrieds — there's hope.

By depending on only one income couples stand an excellent chance of avoiding the trap. They start by eliminating debt with the second salary. Then they can save aggressively — for children, a house, a car or an emergency.

Living on one income may mean settling for a smaller, simpler house. But living on one income, while saving the other, also has advantages — lower debt and a higher down payment — that can make a single salary, if and when the time comes, go much further.

In the end you'll have the ultimate advantage — you won't lose your home when unplanned crises hit.

As Larry Burkett wrote in Debt-Free Living, "Certainly the purchase of a home for a young couple should never be determined on the basis of their combined incomes, because if one income fails (for example, if the wife becomes pregnant and she has to stay home with the child) the entire purchase will be in jeopardy."

Fortunately, my husband and I followed his advice — we didn't commit my salary to our mortgage, and we had a plan for me to stay home with our kids.

But we were still blindsided by a financial crisis we never planned. In January, our 4-year-old daughter was hospitalized for almost two weeks. Following the shock, came the angst: Just as we were returning to normal the bills started arriving.

We had decent insurance, but co-pays and out-of-pockets still left us with a four-figure bill. You can guess where the money came from — that nine-month savings account we started when she was still nestled in my belly.

I still wish we had done more with the double-income time we were given. Hindsight is 20/20 and all that. Fortunately, with the planning we did do, we've been able to care for our family and survive an emergency.

Maybe, with the planning you do, you can do even more.

Copyright 2005 Heather Koerner. All rights reserved.

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